THE NEXT FRONTIER IN GOOGLE'S CAMPAIGN TO CONTROL THE INTERNET - GOOGLE'S MONOPOLISATION OF MOBILE
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GOOGLE’S MONOPOLISATION OF MOBILE: THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET
Contents
Executive Summary ................................................................................................................ 1
Subsidising money‐losing ventures in order to control the mobile Internet
Engaging in a pattern of deception to advance its monopolistic goals
Using anti‐competitive tactics to lock out competitors on mobile devices
Introduction: The Mobile Internet ................................................................................... 3
Google’s Domination of Mobile ........................................................................................ 4
The Sources of Google’s Monopoly Power ................................................................... 7
Subsidising money‐losing ventures in order to control the
mobile Internet ...................................................................................................................... 10
Losing money on Android to foreclose competition in mobile
Reinforcing Android’s dominance through strategic acquisitions
Foreclosing competing search providers from Android
Engaging in a pattern of deception to advance its monopolistic goals .......... 16
Using anti‐competitive tactics to lock out competitors on mobile devices
Conclusion ................................................................................................................................ 21
Executive Summary
Last year, over 550 million smartphones and tablets were shipped worldwide, exceeding shipments of
desktop and laptop computers for the first time ever. Mobile commerce is also soaring, with European
mobile ad spending expected to surge to nearly $6.7 billion by 2016 and to $23.6 billion globally.
People are using mobile devices not just for calls, but to search, shop, navigate, listen to music, watch
videos, and much more. The mobile sector holds tremendous potential for European consumers and
vast new opportunities for European businesses. That potential, however, is at risk from a rapidly
growing monopoly whose tentacles are reaching into every corner of the mobile Internet: Google.
Google already holds a tight monopoly grip on search and search advertising, with shares exceeding
90% in several European markets. Early on, Google recognised the threat mobile computing posed to
it. Rather than compete on the merits, however, Google launched a coordinated effort to eliminate
competition by obtaining control over forms of mobile advertising that threatened its monopoly power
and by depriving competitors of opportunities to achieve the scale they needed to compete.
Google has largely succeeded in this quest. Google controls over 98% of mobile search in Europe and is
rapidly expanding this dominance to other key mobile sectors. It also has succeeded in leveraging this
dominance into mobile advertising. While competition regulators are rightly focused on investigating
Google’s anti‐competitive conduct in search and search advertising, separate investigations and
remedies will be necessary to address Google’s distinct anti‐competitive actions in mobile, including:
1. Subsidising money‐losing ventures in order to control the mobile Internet
Android, Google’s operating system for mobile devices, is key to Google’s quest to monopolise the
mobile Internet. Google views Android not as a product, but as a Trojan horse in its battle to dominate
mobile by giving it the ability to constrain the development of products and services that could
threaten Google’s dominance. Google’s anti‐competitive tactics with Android include:
Losing money on Android to foreclose competition. Google gives away Android for free, and even
gives financial incentives to some operators that use Android, with the clear aim of thwarting
competition to Google’s search and search advertising monopolies. Google also imposes a range
of constraints on Android that are not necessary for the proper functioning of Android but that
dissuade licensees from using anyone other than Google for search and a variety of other services.
Reinforcing Android’s dominance through strategic acquisitions. Google has engaged in a series
of strategic acquisitions to solidify its dominance in mobile advertising and kill off competitive
threats. These include Google’s acquisitions of AdMob, Zagat, Frommers, and Motorola Mobility.
2. Engaging in a pattern of deception to advance its monopolistic goals
Google has repeatedly misled mobile industry participants, regulators, and consumers in order to
solidify its dominance in mobile:
False promises of Android’s openness. Google initially lured partners and consumers into using
Android by promising it would be fully open and free. Since then, Google has tightened its grip on
Android by blocking companies from using services that compete with Google’s own services and
threatening retaliation against licensees that sought to enter into deals with Google’s competitors.
Stealing user data from WiFi networks. Google deliberately engineered its StreetView cars to
collect data on the location of private WiFi networks ‐‐ data which were of clear commercial
benefit to Google’s mobile businesses. After regulators discovered that Google was also secretly
stealing the content of actual consumer communications from unencrypted WiFi networks, Google
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 1
engaged in a series of obstructionist tactics to prevent people from discovering the full scope of its
actions.
Surreptitiously opting AdWords advertisers into mobile search. Google furtively changed the
default settings for its monopoly AdWords advertising platform so that advertisers were
automatically opted into mobile search advertising. This artificially drove up prices for Google’s
mobile search ads because many more advertisers were bidding against each other for a finite
number of ads. Many advertisers also ended up paying for mobile search ads they didn’t want.
3. Using anti‐competitive tactics to lock out competitors on mobile devices
As ICOMP has previously documented, Google has engaged in a variety of tactics to lock out
competitors from key commercial opportunities in the mobile space. These include:
Using Android compatibility testing “as a club.” Google carved out certain features from Android
that are highly valuable to smartphone users and segregated them from the “open” side of
Android. Google then uses something it calls the “Android Compatibility Program” to block
handset makers and mobile operators from using anything other than Google’s proprietary
offerings for these services. A Google Compatibility Program manager even admitted that Google
uses its compatibility testing as a “club” to make phone makers “do what [Google] want[s].”
Threatening retaliation against operators and device manufacturers. Google has reportedly
threatened retaliation against companies offering Android devices who sought to offer competing
mobile devices or to pre‐install non‐Google search or related services. These threats have no
conceivable pro‐competitive purpose or effect.
Entering into exclusive deals. Google enters into many exclusive deals ‐‐ including deals on which
it may lose money ‐‐ that have the effect of depriving competitors of opportunities to acquire the
scale they need to compete effectively. These deals are anti‐competitive because they hamper
rivals’ ability to attract users and tend to lock computer users into Google services.
Mobile represents the future of online advertising and commerce, and preserving a level playing field
is absolutely vital to Europe’s digital future. The power Google is amassing in the mobile sector will
allow it to control what people see, monitor what they buy, and act as the universal toll booth for all
commerce on the mobile web. Google’s use of Android and various exclusionary tactics to dominate
mobile search and advertising will stifle the investment and innovation that benefits consumers and
the larger mobile ecosystem. Even as competition enforcers in Europe and elsewhere seek remedies
for Google’s anti‐competitive conduct in search and search advertising, it is critical that they act swiftly
and decisively in addressing Google’s anti‐competitive acts in mobile as well.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 2
Introduction: The Mobile Internet
Look around when you’re next in an airport, cafe, or meeting and you’ll notice something remarkable:
the mobile Internet is everywhere. People of all ages and across all walks of life now access the
Internet ‐‐ for work, leisure, and shopping ‐‐ through what are essentially mobile computers:
smartphones, tablets, e‐readers and the like.
What’s most amazing is not that the mobile Internet is growing, but the speed of that growth. Last
year, over 550 million smartphones and tablets were shipped worldwide, exceeding shipments of
desktop and laptop computers for the first time ever. 1 By next year, smartphone sales will surpass
sales of all other mobile phones. 2 Mobile data traffic is also exploding, with estimates of an 1,800%
increase between 2011 and 2016 ‐‐ three times the growth rate of other data traffic. 3 That’s because
people are using mobile devices not just for calls, but to search, shop, navigate, listen to music, watch
videos, conduct financial transactions, and much more, integrating these devices and their Internet
connectivity into every aspect of their lives.
Because mobile devices are a prime channel for reaching busy consumers, mobile commerce and
advertising are soaring. European mobile ad spending is expected to surge from $775.5 million in 2011
to nearly $6.7 billion by 2016, with global mobile ad spending reaching a whopping $23.6 billion. 4
Europe might in fact beat the U.S. in mobile ad spending due to the higher number of mobile handsets
in the region. 5
While each of these numbers is impressive on its own, putting them together reveals a deeper truth:
mobile devices have become the centre of a new global computing phenomenon, one that links
communication, content, entertainment, navigation, commerce, advertising, finance, and search. They
also are at the centre of a new world of mobile commerce that is revolutionising how businesses reach
their customers ‐‐ and the intermediaries they rely on to succeed.
The mobile sector holds tremendous promise for European consumers and vast new opportunities for
European businesses. Unlocking this potential is key to achieving Europe’s Digital Agenda: to use
digital technologies to “spur innovation, economic growth and improvements in daily life” while
“enabl[ing] Europe to address its key challenges and … provide Europeans with a better quality of
life.” 6
Today, however, the great potential of mobile computing is at risk. That risk is a rapidly growing
monopoly whose tentacles are reaching into every corner of the mobile Internet: Google.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 3Google’s Domination of Mobile
To understand Google’s control over the mobile Internet, it is necessary to understand Google’s control
over search. Google today holds a tight monopoly grip on search, with market shares exceeding 90% in
several European markets. 7 For Google, however, search is merely a means to a much more lucrative
end: selling ads. This is where Google truly dominates. Of Google’s nearly $38 billion in revenue last
year, over 96% came from advertising. 8 Analysts estimate that Google controls roughly 95% of search
ad revenues in Europe. Not content with its search advertising monopoly, Google is rapidly working to
extend its dominance to other forms of advertising, such as display and video. 9
Early on, Google recognised the threat that mobile computing posed to its search and search
advertising monopolies. That’s because mobile computing offers unique opportunities that could draw
advertisers away from using Google’s PC‐based search and advertising services. These include the
ability to target ads to people on the move and at or near the point of purchase; the ability to target
ads based on a user’s location; the ability to cover the entire screen with an ad and thus command the
user’s attention; and that information and ads shown in mobile applications (“apps”) can serve as
effective substitutes for search results. As Google admitted in its 2008 Annual Report, “If [mobile]
users . . . do not widely adopt versions of our web search . . . our business could be adversely
affected.” 10 To counteract this threat, the company made mobile a top priority: As Eric Schmidt
announced in 2010, “[e]verything that Google will create going forward will be done through a ‘Mobile
First’ lens.” 11
Rather than achieve this goal through competition on the merits, however, Google launched a
coordinated effort to eliminate mobile competition to its search and advertising monopolies. Its goal
was clear: to obtain control over those forms of mobile advertising that threatened its monopoly
search and advertising businesses and deprive competitors of opportunities to achieve the scale they
needed to compete. Its strategy was to leverage its existing monopoly power in PC‐based search and
advertising into the mobile ecosystem by applying many of the same anti‐competitive tactics it used to
achieve dominance in search and advertising onto the new platform of the mobile web.
Google has largely succeeded in its quest to dominate the mobile Internet and to weaken potential
rivals. Google already controls over 98% of mobile search in Europe: 12
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 4Google is rapidly expanding this dominance to other key mobile sectors. Google claims to have over
one billion monthly active users of Google Maps, a service that is particularly relevant for mobile. 13
Google’s YouTube service represents over 60% of video content streamed to mobile devices 14 and is
now the world’s second‐largest source of search queries (after Google itself), bigger even than Yahoo!
or Bing. 15 Smartphones running Google’s Android mobile operating system represent more than half
of all smartphone sales in many European markets. 16
Most importantly, Google has succeeded in leveraging its dominance into mobile advertising profits.
As Google CEO Larry Page revealed not long ago, Google is “seeing a huge positive revenue impact
from mobile, which has grown 2.5x in the last 12 months to a run rate of over $2.5 billion.” 17 A leading
analyst recently adjusted upward its growth forecast for mobile advertising on the ground that “Google
has translated its dominance of overall online and desktop search advertising into dominance of
mobile search and mobile advertising at a rapid pace.” 18 Google has been able to generate such high
profits in mobile advertising in large part because it can leverage the same massive infrastructure, user
data, and advertiser network that powers its PC‐based search monopoly into the mobile sector:
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 5How Google Leverages Its PC Search Monopoly
PC Search Mobile Search
Multibillion‐Dollar Server Infrastructure
User User and
data device data
Technologies for Targeting and
Monetisation
ICOMP’s 2011 paper, Google’s Efforts to Monopolise Key Segments of the Mobile Ecosystem, provided
an introduction to these issues. This paper builds on that analysis by examining other conduct through
which Google is depriving rivals of opportunities to compete and extending its monopoly power into
every corner of the Internet. As one observer recently noted,
“Google appears to have its sights set on controlling a user’s total Internet experience,
from mobile devices, browsers and applications to Internet and cable TV service[s].
Basically, Google would love for Internet users to see its brand at every turn on the
Internet and every time a wallet is opened to purchase a product or service.” 19
The mobile Internet is simply too important to Europe’s citizens and economy to fall prey to the
ambitions of a private monopoly. Google’s quest to dominate online advertising places its interests in
direct conflict with those of its users (consumers) and customers (including advertisers and web
publishers); these and related conflicts of interest permeate its efforts to dominate mobile as well.
ICOMP hopes this paper will inform consumers and other stakeholders of the important issues at stake
and assist competition enforcers in conducting detailed investigations of Google’s abusive practices in
mobile.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 6The Sources of Google’s Monopoly Power
A key component in Google’s strategy to acquire and maintain monopoly power is to prevent others
from gaining the scale they need to compete effectively. Search engines can improve their results
more effectively as their scale ‐‐ volume of search queries, number of advertisers, and volume of user
data ‐‐ increases. Having more users, advertisers and data allows search engines to learn more quickly,
run more efficiently, and generate the higher profits that are essential to offsetting the enormous fixed
costs associated with running a horizontal search engine (indeed, Google reported that it invested over
$2.8 billion in 2011 just in datacenters and related equipment). 20 As the U.S. Department of Justice
explained in approving the combination of Microsoft’s and Yahoo!’s search businesses:
“The search and paid search advertising industry is characterised by an unusual
relationship between scale and competitive performance. The transaction will enhance
Microsoft’s competitive performance because it will have access to a larger set of [search]
queries, which should accelerate the automated learning of Microsoft’s search and paid
search algorithms and enhance Microsoft’s ability to serve more relevant search results
and paid search listings, particularly with respect to rare or "tail" queries. The increased
queries received by the combined operation will further provide Microsoft with a much
larger pool of data than it currently has or is likely to obtain without this transaction. This
larger data pool may enable more effective testing and thus more rapid innovation of
potential new search‐related products, changes in the presentation of search results and
paid search listings, other changes in the user interface, and changes in the search or paid
search algorithms.” 21
While these returns to scale are substantial for smaller market participants, they taper off as a search
engine reaches a certain size ‐‐ one that Google passed years ago. 22 Google, which understands this
dynamic better than anyone, has for years deprived competitors of the ability to compete by engaging
in a systematic though largely hidden effort to lock them out of opportunities to gain scale. The loss of
competition and diminished incentives to innovate flowing from Google’s conduct result in far greater
harms to consumers than any legitimate, pro‐competitive benefits that might arise from it.
Google also holds a massive scale advantage in collecting and exploiting user data for targeted
advertising ‐‐ an advantage Google solidified recently when it changed its privacy policies to grant itself
broad rights to combine user data it collects across more than 60 Google services. 23 These scale
advantages are even more acute in mobile given the unique opportunities to collect user data that
mobile devices provide:
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 7Examples of Data Collected by Mobile Devices
Apps Map
used Videos queries
viewed Mobile
payments
UPC scans Voice
for product queries
Click‐
comparisons to‐call Location‐
based
Check‐ offers
Click‐ ins
to‐text
Query
alterations
and spelling
More Data for Targeting and
Monetisation
Google’s business model in mobile is focused on collecting as much information about consumers as
possible in order to show them more ads and increase the prices it can charge for them. As Google’s
Senior Vice President for Mobile Andy Rubin said, “We don’t monetise the thing we create . . . We
monetise the people that use it. The more people use our products, the more opportunity we have to
advertise to them.” 24
The anti‐competitive impact of Google’s practices is more severe because they are taking place within
a regulatory environment in which Google is uniquely placed to maximise its profits while market
actors in upstream (input) relationships are subject to significant regulatory constraints. Perhaps the
clearest example is the regulatory regime applicable to European mobile operators. Mobile operators
in the EU – over whose networks Google’s mobile services are supplied ‐ are subject to a range of
regulatory obligations affecting most elements of their commercial behavior. These include:
Onerous and costly market entry requirements under the terms of the Authorisation Directive; 25
Regulation of key operating conditions (e.g., price caps imposed on international roaming
relationships under the Roaming Regulation; 26 capping of mobile termination rates under the
Termination Rates Recommendation; 27 regulation of wholesale mobile access and call origination
under the Framework Directive and Access Directive 28 ); and
A swathe of contractual, transparency and consumer protection provisions under the Universal
Service Directive. 29
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 8Similarly, websites and other online publishers – whose content populates Google’s search results and
thus drives its revenues ‐ are subject to a range of free movement constraints and competition law
restrictions on their ability to license content, as well as restrictions arising from the laws of libel,
consumer protection, and other rules. 30
By contrast, Google benefits from a regulatory regime that allows it to operate relatively unfettered. In
these circumstances, concerns about markets “tipping” in favor of Google are paramount. The usual
competitive constraints imposed by potential or fringe competitors will be absent where those
competitors’ costs of doing business are heightened through their compliance costs with regulatory
obligations and their lack of flexibility in responding to sudden shifts in value in the Internet
ecosystem.
While competition regulators are rightly focused at present on crafting remedies for Google’s anti‐
competitive conduct in search and search advertising, separate investigations and remedies will be
necessary to address Google’s distinct anti‐competitive actions in mobile. The sections that follow
describe several of these actions in more detail.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 9Subsidising money‐losing ventures in order to control
the mobile Internet
Android, Google’s operating system (OS) for smartphones, tablets, and other mobile devices, is key to
Google’s quest to monopolise the mobile Internet. The speed of Android’s domination has been
stunning. Although the first smartphone running Android was launched fewer than four years ago,
Android smartphones now represent between 50‐80% of all smartphone sales in many European
markets. 31 Over 1.3 million new Android devices are activated each day. 32 The chart below illustrates
the growth of Android’s dominance in several European markets over just the past year: 33
In the three months ending June 2012, Android devices outsold Apple’s competing iOS devices three to
one while capturing 64% of the worldwide market share. 34 As one analyst noted, “There is no denying
Android’s dominance anymore.” 35
Despite Android’s success, Google does not make money from Android directly. That’s because Google
views Android not as a product in the conventional sense, but as a Trojan horse in its battle to
dominate mobile advertising and defeat any rival that challenges this dominance. Specifically, Android
gives Google the ability to constrain the development of competing mobile apps, services, and ad
platforms that could threaten its dominance in search advertising and related markets. As one analyst
noted, Google developed Android as “a defensive loss leader to prevent the coming generation of
users who are primarily on mobile from abandoning Google’s core search product.” 36
Google’s anti‐competitive tactics with Android include the following:
Losing money on Android to foreclose competition in mobile.
Android did not dominate the smartphone market through innovation. Indeed, a jury recently
awarded $1 billion in damages against a leading smartphone manufacturer because Google’s Android
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 10software running on its phones copied several patented inventions. 37 The reason for Android’s
meteoric rise is the lower price for Android devices, 38 which is possible for one simple reason: because
Google gives away the Android code for free. Google even provides financial incentives to some
operators that agree to use Android, essentially making it better than free to those operators. 39 In
short, of the billions Google spends on Android, it recoups none of that in royalties.
It is not uncommon, of course, for a company to offer one product for free (or below cost) and recoup
its costs by charging for a related product or service. Telecommunications operators do so all the time,
for instance when they offer handsets at reduced prices. In many cases, this practice benefits
consumers and spurs competition. Also, device manufacturers and operators clearly incur costs in
launching mobile devices beyond the cost of the operating system, and there is nothing inherently
wrong with another company subsidising those costs so that it can generate revenue in related areas.
The reason Google’s pricing of Android is anti‐competitive is because Google subsidises Android with
the clear aim of protecting its search and search advertising monopolies from competition. 40 It also
imposes a range of contractual and technical constraints on Android that are not necessary for the
proper functioning of Android but that dissuade licensees from using anyone other than Google for
search, search advertising, and a variety of other services ‐‐ the effect of which is to entrench Google’s
dominance in these markets and to foreclose competition. In short, “Android is another ‘channel’ for
distribution of [Google’s] Search and AdSense” services. 41 As one analyst recently explained,
“Android, as well as Chrome and Chrome OS for that matter, are not ‘products’ in the
classic business sense. . . . Rather they are very expensive and very aggressive ‘moats’
[against competition], funded by the height and magnitude of Google’s [search monopoly]
castle. Google’s aim is defensive not offensive. They are not trying to make a profit on
Android or Chrome. They want to take any layer that lives between themselves and the
consumer and make it free (or even less than free). . . . In essence, they are not just
building a moat; Google is also scorching the earth for 250 miles around the outside of
the castle to ensure no one can approach it.” 42
While getting Android for free might have short‐term advantages for mobile device manufacturers,
Google’s practices impose long‐term harms on the mobile ecosystem. Using its search advertising
profits to undercut competitors’ prices while simultaneously preventing mobile device manufacturers
and mobile operators from using competing services is the opposite of competition on the merits. The
ultimate victims of Google’s predatory pricing and tying are consumers, who will suffer fewer choices
and stagnant product development in the mobile space. Furthermore, once Google succeeds in
eliminating competing OS suppliers, it will be free to begin charging higher prices for Android as well.
If that sounds unlikely, consider this. Several years ago, Google introduced a new web analytics service
called Google Analytics. At the time, the market for web analytics (which helps web sites measure and
analyse traffic to their sites) was flourishing; companies were innovating rapidly and competing
vigorously. Google, however, shocked the market by offering Google Analytics for free. Google
Analytics also gave Google access to a treasure trove of information about users’ web surfing
behaviour that it could turn around and use to charge higher prices to advertisers (i.e., customers of its
separate monopoly AdWords ad platform). As a competing web analytics provider wrote at the time:
“Google has killed the web analytics software industry with the release of the new version
of Google Analytics . . . .
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 11“Google Analytics version 2 is not revolutionary. It does not extend web analytics software
by providing new forms of analysis. Neither does it extend our understanding of websites
by offering new approaches. What Google has done is simply take every feature in every
product on the market and put them all into one system, and then make it available for
free.” 43
The author concluded, “Google Analytics does for the web metrics industry what the Google search
engine did for online search: it kills everyone else off.” 44 These words were prescient, for once Google
Analytics became dominant and had forced many rivals to exit the market or develop new business
models, Google suddenly changed course and began charging high‐volume users of Google Analytics
$150,000 per year. 45
Likewise, online mapping companies, including ICOMP members StreetMap, HotMaps, and Bottin
Cartographes, have alleged that they were priced out of the market by Google Maps, which offered its
APIs (application programming interfaces) free to businesses until 2011. According to a decision by the
French Commercial Court, Google was able to offer its Maps API service at no cost by cross‐subsidising
it with its other services, and in this way failed to recoup its costs for product development and
mapping data. 46 Google’s predatory pricing made competing mapping services less attractive to
advertisers and less able to invest in new features and services. 47 Google Maps also gave Google
access to valuable information about mobile users and new ad‐targeting possibilities that it was
uniquely positioned to exploit through its dominant AdWords ad platform. As one observer wrote:
“[Google] likes to talk about services such as Maps and Earth as if they were providing
them for fun – a neat, free extra as a reward for using their primary offering, the search
box. But a search engine, in some sense, is an attempt to map the world of information –
and when you can combine that conceptual world with the geographical one, the
commercial opportunities suddenly explode. Search results for restaurants or doctors or
taxi firms mean far more, and present far juicier opportunities for advertisers, when they
are geographically relevant.” 48
Once Google was able to solidify Google Maps’ dominance, Google switched course and, as with
Google Analytics, began charging large‐volume customers to use it. 49
Similarly, Google initially offered its price comparison service, Google Product Search (later renamed
“Google Shopping”), as a free service to retailers and helped that service gain market share by giving it
preferential placement in Google’s search results 50 (which imposed separate anti‐competitive injury on
competing price comparison services, given Google’s monopoly power in search). Once the service
gained significant market share, however, Google began charging retailers to be included in its
listings. 51
Given these examples, there is every reason to believe that, if given the opportunity, Google will begin
charging higher prices for Android once it has solidified its grip on the mobile OS market and crushed
potential rivals. These concerns are merely one illustration of the potential anti‐competitive effects of
Google's market power. By constantly reinforcing its overwhelming dominance in search, Google
grants itself the short‐term luxury of leveraging that dominance into any and all adjacent areas of the
Internet value chain. In doing so, it consistently cross‐subsidises its services with a view to excluding
rivals. Where Google cannot achieve this exclusion through subsidised pricing alone, it engages in
tying or other anti‐competitive practices, or in the strategic, pre‐emptive acquisition of niche
competitors (see discussion below). The net effect is to preserve and extend Google's monopoly
power.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 12Reinforcing Android’s dominance through strategic acquisitions
Google also has engaged in a series of strategic acquisitions to make Android even more effective in
solidifying Google dominance in mobile advertising and killing off competitive threats:
AdMob. As discussed in Google’s Efforts to Monopolise Key Segments of the Mobile Ecosystem,
when Google announced its intent to acquire AdMob in November 2009, it had already gained a
large share of mobile search advertising. Nonetheless, it faced a major threat from ads served to
mobile users directly within their mobile apps. Because people were increasingly using mobile
apps to locate specific information, these apps, and the ads served in them, posed a threat to
Google’s search advertising business. AdMob at the time was the leading network for serving in‐
app mobile ads and had a strong position with developers of apps for Apple’s iPhones, which at
the time posed the biggest competition to Android phones. Critics of the acquisition warned that
Google’s acquisition of AdMob would constrain in‐app advertising as a potential counterweight to
Google’s mobile search dominance. After review, U.S. antitrust enforcers ultimately decided to let
the deal proceed, although noting that the decision was “a difficult one because the parties
currently are the two leading mobile advertising networks.” 52
Since that time, Google has used AdMob to dominate mobile in‐app advertising. Google gave
itself a major lift in this when it integrated AdMob into its monopoly AdWords ad platform. In one
fell swoop, Google added 350 million mobile devices and 300,000 mobile apps into the AdWords
universe, thereby catapulting its advertiser base far beyond what any competitor could achieve
and capturing the vast majority of ad opportunities on mobile phones. This move made it
significantly harder for other mobile ad platform services to obtain the minimum scale they
needed to compete ‐‐ precisely the strategy Google used to obtain monopoly power in search and
search advertising ‐‐ while allowing Google to leverage the scale advantages of its monopoly
search ad platform (AdWords) into its mobile app advertising business. Not surprisingly, Google
has used its control over Android to propel AdMob into the leading provider of in‐app ads on
Android devices by a wide margin: 53
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 13 Zagat and Frommers. One of the most common things people do with mobile devices is search for
“local” information ‐‐ reviews on nearby restaurants, insights on local attractions, directions, etc.
Mobile devices are uniquely suited to this because they can automatically customise search
results, ads, or other content and then continue to update and refresh those results based on
where the user is at any given moment. This is hugely valuable for advertisers, both because it
helps them target ads to interested consumers more effectively and because it allows them to
catch consumers at or near the point of a purchase decision. Services that provide this localised
information on mobile devices could have posed a major threat to Google’s search business
because they provide results ‐‐ and ads ‐‐ that are likely to be much more relevant and useful than
the non‐specialised results available on Google Search. For that reason, “Local search is becoming
a crucial battleground online as the smartphone and tablet computer boom puts the web in more
pockets and handbags around the world.” 54
For many years, Google was able to attract users, advertisers, and partner websites by promising
that it would not offer local or other content itself, but instead simply act as a conduit to other
people’s content. 55 For instance, in a 2010 interview, then‐CEO Eric Schmidt said Google would be
“‘careful to define a line where we don’t cross into content’ and wanted to remain a ‘neutral
platform for content and applications.’” 56 As with in‐app advertising, however, once Google
recognised the threat that local content providers posed to its search and search advertising
monopolies, it quickly moved to vanquish these threats.
A key step in this strategy was Google’s acquisition earlier this year of two well‐known travel
brands: Zagat (restaurant reviews) and Frommers (travel guides). Both brands specialise in “local”
information and thus are particularly relevant to mobile consumers ‐‐ and to the advertisers trying
to reach them. This aggressive shift by Google ‐‐ away from being a neutral platform that points to
other people’s content, to being the actual supplier of content ‐‐ reflects Google’s no‐holds‐barred
effort to protect its $39 billion advertising business as online commerce goes mobile. As one
observer wrote on the Frommers and Zagat acquisitions:
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 14“By moving upstream, Google is turning [to] its so‐called monopoly in search to drive
traffic to its own content at the expense of any non‐Google property.
“Imagine Lonely Planet or Fodor’s trying to get traffic from Google search results
when their primary competitor is now owned by Google?
“This not only spells trouble for any competitor who gets traffic from Google (eg., all
of them), but also is potentially hazardous to users who expect unbiased search
results (despite many studies suggesting Google has already strayed far from
objectivity, the average person still expects it).” 57
Motorola Mobility. Google’s largest acquisition by far, both in the mobile space and overall, was
Motorola Mobility in 2012 for $12.5 billion. While some questioned Google’s rationale for the deal
and its hefty price tag, there is no question that it will give Google greater leverage to force third
parties to favour Google search and related mobile services on Android devices. First, by ensuring
that the first Android smartphones to market (those by Motorola) will have Google Search and
other key services as defaults, Google will be able to set consumer expectations and give added
weight to threats to withhold new Android code from device makers that hesitate to follow suit
(conduct that would be entirely “rational” from a monopolist unchecked by competition
enforcers).
Second, the Motorola Mobility acquisition gave Google access to the company’s vast portfolio of
patents on key mobile technologies. Although ultimately deciding not to block the transaction,
competition authorities in both Europe and the United States acknowledged the concern that
Google could use its control over certain “standard‐essential” patents in Motorola Mobility’s
portfolio to foreclose competition by rivals.58 Even beyond these concerns, Google has the ability
and incentive to condition the licensing of key patents on manufacturers and operators agreeing to
preference Google search and other services on their devices (through default settings, dedicated
hardware keys, and the like). Having this added patent leverage will also allow Google to decrease
the percentage of advertising and other revenues that it currently shares with mobile device
makers and operators to convince them to use Android.
Foreclosing competing search providers from Android.
Google has imposed various restrictions on Android that make it impossible for others to compete on
equal terms with Google on Android devices. These anti‐competitive tactics are part of a broader
strategy of locking out rivals from opportunities to gain scale ‐‐ thereby preventing them from
mounting effective competition to Google. These points are described more fully in Part VI.
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 15Engaging in a pattern of deception to advance its
monopolistic goals
Google has repeatedly misled mobile industry participants, regulators and consumers in order to
solidify its dominance in mobile. Google’s false and misleading statements have distorted the market
by dissuading competitors and consumers from taking actions they would or might have taken that
could have injected greater competition into the market. As competition enforcers investigate
Google’s conduct, they should take into account Google’s history of deception as they seek to craft
effective and durable remedies to restore competition. Examples of Google’s deception include the
following:
False promises of Android’s openness. When Google launched Android in 2007, it lured partners
and consumers into using Android by promising it would be fully open and free, so that “no
industry player can restrict or control the innovations of any other.” 59 These promises of openness
baited device manufacturers and mobile operators into adopting Android and to building
marketing strategies and businesses around their Android offerings.
Since that time, Google has systematically tightened its grip on Android to block companies from
using services that compete with Google’s own services, even threatening retaliation against
“partners” that had the temerity to enter into deals with Google’s competitors. For instance,
Google pressured Motorola and Samsung to drop a competing location‐based service by Skyhook
Wireless on their Android phones and to use Google’s inferior service instead. More recently,
Google succeeded in pressuring Acer not to offer competing smartphones built on the Android
code base by threatening to cancel Acer’s license to sell Android phones (these and other
exclusionary practices are described more fully in Part VI).
The result is that Android today is a far cry from Google’s early promises of openness. As noted in
a VisionMobile study partially funded by the European Commission, “Android ranks as the most
closed [open source] project” reviewed in the study. 60 When set against Google’s lofty claims of
Android’s openness, its description of how Google manipulates Android for its own anti‐
competitive purposes is damning:
“Google tightly controls the Android platform and its derivatives, i.e., the make‐up of
the Android platform on commercial handsets. Device manufacturers must pass the
Compatibility Definition Document (CDD) and Compatibility Test Suite (CTS) tests in
order to be allowed use of the Android trademark, the Android Market or other
important Google Mobile Services such as GMaps, Gmail and GTalk.
“The CDD lists the minimum set of functionalities and technologies that an Android
device must contain in order to use the Android trademark. Whilst the
documentation acknowledges that components can hypothetically be replaced with
alternate implementations, this practice is strongly discouraged, as passing the CTS
tests will become substantially more difficult. . . .
“Devices that pass the CTS can then “seek” approval to use the Android trademark
and the Google Mobile Services, although the final criteria appear both
undocumented and somewhat capricious.
“As Google’s Dan Morrill put it in an e‐mail on Aug. 6, 2010, “We are using
compatibility as a club to make them [OEMs] do things we want.” . . .
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 16“It is also worth noting that Google requires parties joining the Open Handset
Alliance to sign up to an “anti‐fragmentation” agreement, although we understand
that the contents of that agreement are rather vague and reference primarily the
Android Compatibility program. There are rumours that Google is now asking OEM
licensees to also sign similar anti‐fragmentation agreements, which has prompted
complaints to the U.S. Department of Justice.” 61
Stealing user data from WiFi networks. Google continually seeks out new sources of data about
consumers and their web surfing habits because this allows Google to target ads more effectively
and increase profits. Particularly in the mobile context, being able to link these data to a user’s
location is potentially valuable. Recognising this, Google deliberately engineered its StreetView
cars (the cars taking pictures of homes and other locations for Google’s StreetView mapping
service) also to collect data on the location of private WiFi networks. These data were of clear
commercial benefit to Google. As France’s data protection authority (the Commission Nationale
de l'Informatique et des Libertés) concluded:
“[C]ollecting data, in particular users’ MAC addresses, allowed the company to enrich
its localisation databases thanks to the MAC addresses of the WIFI routers recorded
by its moving Google Cars. The collected data grants to the company an undeniable
advantage over its competitors, and allows it to offer efficient geolocalisation
services. Geolocalisation services offered by the company, which generates
important traffic, are therefore likely to produce advertising revenues amounting to
the major part of the company’s turnover.” 62
In fact, however, Google was collecting not only WiFi location data, but also secretly stealing the
content of actual consumer communications from unencrypted WiFi networks. When later
uncovered, the scandal was described as “one of the most massive surveillance incidents by a
private corporation that has ever occurred.” 63 Even worse was Google’s string of false and
misleading statements to privacy regulators and consumers about its actions and its repeated
efforts to obstruct investigations into its conduct. For example:
• When German regulators initially demanded that Google allow them to review the data
being collected by StreetView cars, Google refused, insisting that its cars had “never
collect[ed] the content of any communications.” 64 Two weeks later, after ongoing pressure
from regulators, Google suddenly changed its story, admitting that its StreetView cars had
been “collecting samples of payload data from open (i.e., non‐password protected) WiFi
networks” but claiming that no personally sensitive information had been collected. 65
• Five months later, after Canadian authorities completed their own independent review of
the data collected, Google changed its story again and was forced to admit that “in some
instances entire emails and URLs were captured, as well as passwords.” 66
• Google repeatedly claimed that its collection of private user data “was a mistake” and that
“the project leaders did not want, and had no intention of using, payload data.” 67 An
investigation by the U.S. Federal Communications Commission (FCC), however, determined
that “the data collection resulted from a deliberate software‐design decision by one of the
Google employees working on the Street View project” and that the employee “intended
to collect, store and review payload data for possible use in other Google products.” 68 The
FCC also concluded that Google had “deliberately impeded and delayed the [FCC]’s
investigation.” 69
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 17While regulators understandably have focused on the privacy aspects of Google’s deceptions and
obstructionist tactics, competition enforcers also should take note. First, Google’s repeated
disregard for users’ privacy interests has given it access to data that is extremely valuable for
targeted advertising ‐‐ data that Google’s competitors will need to collect through legal (and more
expensive) means. Second, by deceiving users about its privacy practices, rather than competing
on the true merits of these practices, Google’s misrepresentations lead consumers and companies
to select Google products and services when they might have selected competing alternatives had
they known the truth about Google’s conduct. Third, Google’s disregard for the law and for
regulators suggests that competition enforcers should build strong monitoring provisions and
safeguards into any remedies ultimately imposed on the company.
Surreptitiously opting AdWords advertisers into mobile search. Another example of Google
deceit to strengthen its market power in mobile was its decision in 2008 to furtively change the
default settings for its monopoly AdWords advertising platform so that advertisers were
automatically opted into participating in mobile search advertising. 70 According to a 2010
presentation by online advertising analyst Simon Buckingham:
“On 8th December 2008, Google extended their Internet [advertising] products to
the mobile platform simply by changing the default campaign settings for AdWords
from Desktops and Laptops to Desktops, Laptops, and mobile devices with full
Internet browsers (smartphones), and this has remained the default ever since. . . .
Google not only changed the default for new AdWords campaigns to automatically
include smartphones, it also retroactively altered the campaign settings for all active
AdWords campaigns to run across both platforms . . .” 71
This artificially drove up prices for Google’s mobile search ads because many more advertisers
were bidding against each other for a finite number of ads. Because Google failed to notify
advertisers of this change at the time, many ended up paying for mobile search ads they didn’t
want – e.g., because they had not yet modified their websites to be viewable on mobile devices.
By deceiving advertisers in this way, Google generated huge revenues and placed other mobile ad
platforms, with fewer advertisers, at a major competitive disadvantage.
Using anti‐competitive tactics to lock out competitors on mobile devices
As ICOMP documented in last year’s Google’s Efforts to Monopolise Key Segments of the Mobile
Ecosystem, Google has engaged in a variety of tactics to lock out competitors from key commercial
opportunities in the mobile space. As competition enforcers investigate whether these tactics violated
applicable competition rules, they should bear in mind that Google’s actions have potentially far
greater anti‐competitive impact in the mobile sector. This is due to a variety of factors ‐‐ for instance,
the greater difficulty users often face in switching the default search engines on mobile devices; the
fact that users are less likely to use an alternative to the default search engine on their mobile devices
than on their PCs; and the closer linkages between search, search advertising, located‐based services,
and in‐app advertising on mobile devices than on PCs. Indeed, because obtaining the default search
position on mobile devices can be, in practical terms, nearly equivalent to exclusivity, the competitive
value to Google of locking up the default position for its search, mapping, app store, and other services
is far greater on mobile devices than it is on PCs.
Google’s anti‐competitive actions described in ICOMP’s earlier paper on competition in mobile, the
effects of which continue today, include the following:
THE NEXT FRONTIER IN GOOGLE’S CAMPAIGN TO CONTROL THE INTERNET - 18 Using Android compatibility testing “as a club.” Google carved out certain features from Android
that are highly valuable to smartphone users ‐‐ such as search, mapping, an app marketplace, and
others ‐‐ and placed them into closed‐source, proprietary software packages that are segregated
from the “open” side of Android. Google then uses something it calls the “Android Compatibility
Program” to block handset makers and mobile operators from using anything other than Google’s
proprietary offerings for these services.
Perhaps the best‐known example of this strategy is Google’s efforts to block Motorola and
Samsung from offering Android devices that used a location‐based service offered by a company
called Skyhook Wireless. When Google learned that Motorola and Samsung intended to use
Skyhook’s location positioning service on their Android phones, Google quickly intervened and
forced them to use a service offered by Google instead – even though Skyhook’s technology was
regarded by many as superior. 72 This allowed Google to monetise users’ location data through
mobile advertising and prevented competing ad platforms from utilising this location data. In an
email discovered by Skyhook in the course of its antitrust lawsuit against Google, a Google
Compatibility Program manager admitted to a colleague that Google uses compatibility as a “club”
to make phone makers “do what [Google] want[s].” He also suggested that Google uses
compatibility as an excuse for denying approval of third‐party applications even when it has “no
clear basis for saying [the applications] violate the Android security model.” 73
As described in the EU‐sponsored study referenced earlier, Google also offers early releases of new
versions of Android to preferred manufacturers that agree to include Google Search as the default
on their devices, which likewise has the effect of penalising companies that don’t agree to do
Google’s bidding. It also has taken steps to force companies using Android to sign an “anti‐
fragmentation” agreement ‐‐ purportedly designed to prevent the Android source code from
splitting into several different versions ‐‐ that may serve similar anti‐competitive purposes to
Google’s compatibility testing. 74
Threatening retaliation against operators and device manufacturers. On several occasions,
Google has reportedly threatened retaliation against companies offering Android devices who
sought to offer competing mobile devices or to pre‐install non‐Google search or related services.
For instance, in September of this year, Chinese company Alibaba accused Google of forcing Acer, a
phone manufacturer, to break off Acer’s planned release of phones running Alibaba’s mobile
operating system by threatening to cancel Acer’s license to sell Android phones. 75 Google’s threat
reportedly came shortly after an Alibaba executive expressed his company’s desire to compete
aggressively with Android in the Chinese market. 76 In 2011, Korea’s two leading search engines –
Naver (owned by NHN) and Daum – accused Google of violating Korean competition law by
preventing Android suppliers from pre‐installing competing search services. According to NHN, if
smartphone manufacturers sought to install a competing search service, “Google purposefully
delayed a compatibility test that smartphone manufacturers are obliged to go through before
releasing Android phones.” 77 Google reportedly used similar tactics to prevent Verizon from
offering Microsoft’s Bing search engine on Verizon’s Android phones by threatening to block
Verizon’s shipment of Android phones if Verizon did not comply. 78
Google’s threats of retaliation and punishment against its “partners” have no conceivable pro‐
competitive purpose or effect. Their sole purpose is to kill competition to Google’s Android
phones and its search and related services and to prevent competitors from achieving the scale
they need to offer compelling, competitive alternatives to Google.
Entering into exclusive deals. Google also deprives competitors of the ability to gain scale by
entering into exclusive deals ‐‐ including deals on which it may lose money but which have the
effect of depriving competitors of opportunities to acquire the scale they need to compete
effectively. As explained in ICOMP’s Google Under the Antitrust Microscope in describing Google’s
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